Overcoming Tariff Issues through the "First Sale" Strategy
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In an effort to streamline import transactions and reduce costs, the U.S. Customs and Border Protection (CBP) offers the First Sale program. This program is particularly advantageous for companies purchasing goods from China and other international markets.
The First Sale program allows importers to declare the value of goods based on the price paid in the original sale between the manufacturer and the first purchaser. This approach can significantly lower customs duties and tariffs, thereby reducing landed costs.
To take advantage of the First Sale program, companies must follow a series of key steps:
- Identify the First Sale Transaction The first step is to identify and document the "first sale" transaction, often the sale from the Chinese manufacturer to an intermediary (such as an overseas distributor) rather than the final sale to the US-based company.
- Verify Tariff Classification Correctly classifying goods under the Harmonized Tariff Schedule is crucial to ensure proper duty rates are applied and to avoid costly misclassification penalties. Companies can request binding rulings from customs authorities if classification questions arise.
- Calculate Value Based on First Sale Price The declared value should be based on the price paid in the first sale transaction, not the final purchase price.
- Document and Maintain Supporting Records Thorough documentation supporting the first sale transaction, including contracts, invoices, and shipping records, is essential. Customs authorities require proof that the declared value reflects the bona fide first sale.
- Consider Using Foreign-Trade Zones (FTZs) or Bonded Warehouses Placing goods in FTZs or bonded warehouses can defer duties and potentially avoid tariffs altogether if goods are subsequently exported rather than entered into domestic commerce.
- Check Eligibility for Free Trade Agreements (FTAs) Verifying if the goods or components meet regional value content rules under applicable FTAs like USMCA may further reduce duties through preferential tariff rates.
- Ensure Compliance with Regulations and Customs Requirements Following all customs procedures, including accurate tariff classifications, correct invoicing, and disclosure of related-party transactions, is necessary to avoid penalties.
It's important to note that CBP may not always agree with the utilization of the First Sale Option. The burden of proof lies with the importer to provide adequate documentation supporting the use of the first sale value. Accessing the First Sale program requires bringing the manufacturer and the intermediary into the process, assessing the supply chain, complying with CBP regulations, and maintaining intense documentation and recordkeeping.
A pictorial depicting the First Sale Export/Import Transaction Flow is provided by Asis Briefing. This program acknowledges purchases made through intermediaries, often referred to as "buying agents."
This article was published by Daily on July 25th, 2025, and was written by Thomas Cook. By implementing the First Sale program and leveraging customs programs like FTZs and applicable FTAs, companies importing from China can strategically reduce landed costs and tariffs.
- The First Sale program, which is beneficial for companies importing goods from China and other international markets, can also contribute to the reduction of costs within the global trade industry by lowering customs duties and tariffs through the declaration of value based on the first sale price.
- A robust supply chain strategy, incorporating the First Sale program, FTZs, bonded warehouses, and Free Trade Agreements (FTAs), can significantly reduce financial burdens in the industry for companies importing goods, ensuring a more competitive edge in the global marketplace.
